Examples of Corporate Fraud Investigations - Fiscal Year 2016

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The following examples of Corporate Fraud Investigations are written from public record documents on file in the courts within the judicial district where the cases were prosecuted.

Former Restaurant Employee Sentenced in Scheme
On September 22, 2016, in Cincinnati, Ohio, Michael Hudson was sentenced to 60 months in prison and three years of supervised release. Hudson was also ordered to pay restitution of $3,099,305 to Frisch’s Restaurant, $505,000 to Travelers Insurance and $969,697 to the IRS. Hudson was convicted of wire fraud and filing a false federal income tax return with the IRS relative to a scheme to defraud Frisch’s Restaurants, Inc. (“Frisch’s”) by embezzling funds in excess of his authorized pay and compensation. According to court documents, between 1992 and 2014 Hudson was employed at Frisch’s and between 2004 and December 2014 Hudson was the assistant treasurer for Frisch’s. While serving as assistant treasurer, Hudson made unauthorized wire or ACH transfers of funds from the Frisch’s bank accounts for his own benefit. In total, between 2008 and 2014 Hudson embezzled $3,905,930 from Frisch’s as a result of this fraud scheme. In addition, Hudson filed a false 2009 income tax return with the IRS and for the 2010 through 2013 income tax years, Hudson failed to file an income tax return with the IRS.

Owner of New York Produce Distributor Sentenced for Embezzling Over $750,000 from Company Profit Sharing Plan
On July 25, 2016, in Manhattan, New York, Thomas Hoey, Jr., of Garden City, was sentenced to 84 months in prison and ordered to pay $650,936 in restitution and $763,000 in forfeiture. According to court documents, Hoey was the owner and president of a Long Island-based produce distributor (the “Company”), and trustee for the Company’s profit sharing plan (the “Plan”). Over the course of several years, Hoey transferred over $750,000 from the Plan to the Company’s corporate accounts and then unlawfully used the money to purchase hundreds of thousands of dollars of produce for the Company and hundreds of thousands of dollars of Hoey’s personal expenses. As a result of these withdrawals from the Plan as well as fees on the account, the Plan, which at one point was worth over $900,000 in employee benefits, was almost entirely depleted. In order to cover up his embezzlement of Plan assets, Hoey caused plan statements to be created that reflected the employees’ full account balances as if no money had been taken out of the Plan. A 2012 account statement for one employee, for example, reflected an individual benefit total of approximately $140,000. At that time, however, the total amount of money left in the Plan was only approximately $15,000.

Former Samsung America Director Sentenced for Embezzling More Than $1 Million
On June 29, 2016, in Newark, New Jersey, John Y. Lee, a/k/a “Yong Kook Lee,” of West New York, was sentenced to 75 months in prison, three years of supervised release and ordered to pay restitution to Samsung America Inc. of $1,693,271. Lee previously pleaded guilty to wire fraud and subscribing to false individual income tax returns. According to court documents, Lee was involved in an elaborate scheme to embezzle funds from Samsung America, a Ridgefield Park-based global trading and investment company and American subsidiary of the Korean conglomerate Samsung Corp. In September 2000, Lee created a fictitious entity that he called the Engelhard Supple (sic) Co. to make it appear as though that entity was actually Engelhard Corp., a provider of metal refining services. Lee created numerous false financial documents to make it appear that Samsung Corning Precision Glass Ltd., a joint venture involving the Samsung Corporation and Corning Inc., had ordered services from Engelhard when in fact, no real services had been ordered or provided. Lee induced Samsung America to wire money directly into a bank account Lee controlled. The loss to the company was between $1 million and $2.5 million. Lee also signed and filed a 2006 Individual Income Tax Return that failed to include $339,138 he had embezzled from Samsung America in 2006.

President and Chief Financial Officer of Payroll Services Company Sentenced
On April 19, 2016, in Charlotte, North Carolina, Jerry Wayne Overcash, of Charlotte, and John Bernard Thigpen, of Rock Hill, South Carolina, were sentenced to 46 months and 21 months in prison, respectively. Each were also sentenced to two years of supervised release and ordered to pay $1.3 million in restitution. Both previously pleaded guilty to wire fraud charges. According to court documents, Thigpen, a certified public accountant, was the CFO, and Overcash was a co-founder of CenterCede Services Inc. (CenterCede), a payroll services company. Contrary to their representations to clients, Overcash and Thigpen did not pay the clients’ federal taxes in appropriate amounts and by the applicable deadlines. Instead, they diverted the funds to pay their own exorbitant salaries and to cover growing liabilities, including the tax liabilities of other CenterCede clients. Thigpen, Overcash and another individual defrauded CenterCede’s payroll clients of more than $2 million dollars.

Manufacturing Company Employees Sentenced for Embezzling Company Funds
On April 15, 2016, in Dayton, Ohio, Michael J. Wion, of Venice, Florida, was sentenced to 48 months in prison and was ordered to pay $733,640 in restitution to the victim company and $140,794 to the IRS. On the same day, Tess Cremeens, of Troy, was sentenced to 18 months in prison and ordered to pay approximately $250,000 to the victim company and $70,000 to the IRS. Both previously pleaded guilty to conspiracy to commit wire fraud and tax evasion. Wion also pleaded guilty to wire fraud. According to court documents, from approximately 2006 until May 2012, Wion, while controller for the manufacturing company, devised a scheme to embezzle money by setting up multiple accounts to facilitate and conceal approximately 300 electronic transfers of funds from the company’s PayPal accounts to his own accounts. Wion and Cremeens both devised a scheme to steal money from the company’s payroll, as well. For nearly three years, the pair booked additional payments as automotive allowances being paid to former employees who were no longer with the company but who appeared in the system as active names. In total, they transferred money from payroll to their own bank accounts more than 100 times. Between 2008 and 2012, Wion failed to pay approximately $140,000 in federal taxes. Cremeens failed to pay more than $70,000 in federal taxes between 2010 and 2012.

Former Public Works Authority Official Sentenced for Wire Fraud and Tax Fraud
On April 6, 2016, in Oklahoma City, Oklahoma, Helen Rose Dewey was sentenced to 37 months in prison, three years of supervised release and ordered to pay $974,034 in restitution to the public works authority and $233,674 in restitution to the IRS. Dewey pleaded guilty on Nov. 12, 2015, to wire fraud and tax fraud. According to court documents, in 2010, Dewey became the executive assistant to the director of a waste water treatment plant which was owned and operated by a public works authority. As part of her duties, Dewey was authorized to use the public works authority credit cards to make purchases for the wastewater treatment plant. Beginning in January 2008 and continuing to August 2013, Dewey embezzled from the authority by using the credit cards to make unauthorized purchases. In addition, during 2012 and 2013, Dewey embezzled money from the petty cash fund. To conceal her activity, Dewey altered purchase orders and blocked out itemized purchases listed on receipts and falsified claims for approval and payment by the authority. Dewey also falsified her federal tax return for 2012 by grossly under-reporting her income.

Former President of North Carolina Board of Funeral Service and Business Partner Sentenced
On March 29, 2016, in Greensboro, North Carolina, Kenneth Dale Stainback, of Burlington, and Stephen Ray Smith, of Mebane, were sentenced to 14 months and six months in prison, respectively. Both defendants were also sentenced to three years of supervised release and ordered to pay $158,530 in restitution to the IRS for the corporate tax loss and $8,000 in fines. Both were also ordered to pay restitution to the IRS for their individual tax loss. According to court documents, Stainback, the secretary of McClure Funeral Service (McClure), and his business partner, Smith, president of McClure and former president of the North Carolina Board of Funeral Service, conspired to defraud the United States by filing false corporate tax returns for McClure. Stainback, Smith and another co-conspirator bought McClure in 2004 and began diverting gross receipts from the business and omitting that income from the corporation’s tax returns. The co-conspirators opened checking accounts to divert funds from McClure, pocketed cash payments and deleted and altered invoices in the business’s accounting system. During the 2009 through 2012 fiscal years, Stainback, Smith and the other co-conspirator diverted more than $419,000 from McClure.

Prison Term and Nearly $1 Million in Judgments Ordered Against Midamar Founder, Midamar and ISA
On February 25, 2016, in Cedar Rapids, Iowa, William B. Aossey, Jr., the founder of Midamar Corporation (Midamar) and ISA, Inc. (d/b/a Islamic Services of America, Inc.), was sentenced to 24 months in prison, three years supervised release, fined $60,00 and ordered to forfeit $184,983. The corporate entities founded by Aossey were also sentenced. On July 13, 2015, Aossey was convicted of 15 counts of conspiracy, making false statements on export certificates and wire fraud. Evidence at trial showed that foreign governments imposed strict requirements on the import of religiously slaughtered halal beef. Midamar, a halal food distribution company, directed its employees to change markings on of beef product originating from an unapproved slaughter facility to make it appear as if the products originated from an approved slaughter facility. As part of the scheme to ship misbranded meat products, USDA export documents were falsified and fake health certificates were generated by Midamar and ISA employees on USDA, Food Safety and Inspection Service (FSIS) letterhead. As a result of the fraud committed by Aossey, Midamar, and ISA, 22 shipments of beef products not otherwise eligible for import into Malaysia and Indonesia were accepted into commerce in those countries, contrary to the regulations of those countries. The scheme continued for about two and a half years. Midamar and ISA each previously pleaded guilty to conspiracy to commit mail and wire fraud; cover up material facts by a scheme; make and use false statements and documents in a matter within the jurisdiction of the U.S. Department of Agriculture; make false statements on export certificates with the intent to defraud; and, sell misbranded meat in interstate commerce with the intent to defraud. Midamar was fined $20,000, ordered to forfeit $600,000 and placed on probation for five years. ISA was fined $60,000 and ordered to forfeit $600,000. The forfeiture judgment was ordered joint with Midamar. ISA must also abide by a 5 year term of probation. Aossey’s sons Jalel and Yahya, have also been convicted in connection with same scheme as Midamar and ISA and are currently awaiting sentencing.

Former Attorney Sentenced for Stealing Over $2.6 Million
On Feb. 9, 2016, in Trenton, New Jersey, Matthew S. Neugeboren, of Manalapan, was sentenced to 18 months in prison and three years of supervised release. A forfeiture order of $1,404,963 was entered against Neugeboren and he was also ordered to pay $1,404,963 to the victim company and $474,814 to the IRS. Neugeboren previously pleaded guilty to wire fraud and subscribing to a false tax return. According to court documents, from 2006 through 2013, Neugeboren was in-house counsel for a home health care company. As such, Neugeboren maintained an attorney trust account to pay for the company’s expenses. As part of the scheme, Neugeboren caused the company to transfer more money into his attorney trust account than was necessary to cover company expenses. Neugeboren used the additional money for his personal benefit, including gambling. From January 2008 through December 2012, Neugeboren stole $2,644,912 from the company. In addition to the wire fraud scheme, Neugeboren knowingly and willfully filed a false tax return that failed to include approximately $630,000 in gross income that he received in calendar year 2011 from his scheme to defraud the company.

Kansas Man Sentenced In $6 Million Embezzlement
On Feb. 8, 2016, in Kansas City, Kansas, Kenneth Voboril, of Overland Park, was sentenced to 63 months in prison for embezzling more than $6 million from an Overland Park company. Voboril pleaded guilty to wire fraud and filing a false tax return. According to his plea, Voboril was hired in 2005 by Commodity Specialists Company to run its subsidiary, TransMaxx. TransMaxx brokered trucking deliveries for customers and occasionally provided services to CSC. Voboril devised a scheme to defraud CSC by creating fake companies and billing CSC for deliveries that never occurred. He caused false truck load information to be entered into TransMaxx’s computer system, resulting in invoices being created by TransMaxx’s account software program. Voboril embezzled more than $6 million from CSC. In addition, he failed to report the income on his federal tax returns.

CEO of “Green” Cleaning Product Company Sentenced for Defrauding Investors
On Jan. 21, 2016, in Sacramento, California, Brent Lee Newbold, of Granite Bay, was sentenced to 51 months in prison and ordered to pay more than $2.9 million in restitution. On Sept. 3, 2015, Newbold pleaded guilty to a scheme to defraud investors that ran from October 2007 to January 2010. Newbold was the chief executive officer of Holy Cow, a business that produced a “green” cleaning product. According to court documents, Newbold made a variety of misrepresentations to investors about the financial health of the company, including the company’s debt levels and how invested funds would be used. Between July 2008 and January 2010, Newbold solicited 13 individual investors and falsely claimed that he was authorized to act on behalf of Holy Cow; that he owned Holy Cow; that he owned the majority of Holy Cow stock; and that Holy Cow was financially sound, stable and profitable. In some cases, Newbold provided his individual investors with false Holy Cow stock certificates, false Holy Cow purchase order reports, and corporate promissory notes. In fact, Holy Cow bore a significant amount of debt, and Newbold continued to take additional debt related to Holy Cow. Newbold used investor funds for nonbusiness purposes, diverting it to himself and his wife, paying his mortgage, and paying previous investors. By December 2009, Spence Enterprises put Holy Cow into bankruptcy as a result of the unauthorized and undisclosed debt. The loss amount was over $2.9 million.

Five Defendants Sentenced for Scheme to Defraud Xerox
On Jan. 19, 2016, in Rochester, New York, Anthony Fretto, of Webster, was sentenced to 12 months in prison and ordered to pay restitution to Xerox totaling $4,061,000. Fretto was previously convicted of conspiracy to commit mail fraud and conspiracy to engage in monetary transactions involving the proceeds of unlawful activity. Daniel Streff, Thomas Randall, Edward Hawkins and David Dailey were each sentenced to five years of probation for their participation in the scheme and each was ordered to pay restitution to Xerox ranging from $175,000 to $850,000. According to court documents, between 2002 and 2007, these defendants, and five others, perpetrated a scheme through Clarkson Auto Electric to submit false invoices for the maintenance of Xerox’ forklift fleet in Webster. The defendants, through Clarkson Auto Electric, issued approximately $4,100,000 in false invoices to Xerox which was charged for new forklift parts and repair services that were ordered by the defendants but never provided to Xerox. The five additional defendants, John Jarnot, Mathew Lavilla, Gerald Fretto, James Noto, and Randy Vansteen have all been convicted and await sentencing.

Hawaii Businessman Sentenced for Tax Fraud
On Jan. 7, 2016, in Honolulu, Hawaii, Albert S.N. Hee, of Kailua, Hawaii, was sentenced to 46 months in prison, one year of supervised release, ordered to pay a $10,000 fine and $431,793 in restitution to the IRS. Hee was convicted in July to one count of corruptly endeavoring to obstruct the IRS and six counts of filing false individual income tax returns for the years 2007 to 2012. According to court documents, Hee owned Waimana Enterprises Inc., a telecommunications holding company based in Honolulu. Between 2002 and 2012, Hee caused Waimana to pay more than $2 million of his personal expenses. Hee then falsely characterized these personal expenditures as business expenses on Waimana’s corporate income tax returns. Hee also filed false individual income tax returns for 2002 to 2012 on which he failed to report the expenditures as income.

Former Executive of Nuclear Power Company Sentenced
On Jan. 7, 2016, in Boise, Idaho, Jennifer R. Ransom, of Meridian, was sentenced to 30 months in prison and three years of supervised release, the first six months in home confinement. Ransom was also ordered to forfeit $580,780 and pay $116,138 in restitution to victim-investors. Ransom pleaded guilty to securities fraud on April 21, 2015. According to the plea agreement, Ransom was the Senior Vice President of Administration of Alternate Energy Holdings, Inc. (“AEHI”). Ransom, along with co-defendant, Donald L. Gillispie, the former President and CEO of AEHI, and other “nominees,” participated in a scheme to defraud or deceive AEHI investors. The scheme involved Gillispie and Ransom recruiting nominees to make purchases of AEHI stock on the market for the express purpose of artificially inflating the market price of AEHI stock. Ransom received shares of AEHI stock as executive compensation. From June 2010 through September 2010, a period during which attempts were being made to artificially inflate the market price of AEHI stock, Ransom sold approximately 1,000,000 of her shares and received approximately $675,326 in return, of which approximately $580,780 was the proceeds of securities fraud.

Former Administrator at Los Angeles Law Firm Sentenced for Embezzlement
On Dec. 21, 2015, in Los Angeles, California, Esterlina Santos was sentenced to 60 months in prison and ordered to pay $3,322,161 in restitution to her former employer and $781,109 to the Internal Revenue Service. Santos pleaded guilty in June to mail fraud and subscribing to a false tax return. According to court documents, from 2004 to August 2010, Santos fraudulently obtained approximately $3,322,161 from the Law Offices of Robert Smylie and Associates (RSA). While serving as the firm administrator for RSA, Santos used QuickBooks software to generate checks from RSA’s operating account to pay for expenses for her personal credit accounts. After Santos generated checks from RSA’s operating account and mailed them to pay her personal credit accounts, she used QuickBooks to alter the checks to falsely reflect that they were paid to RSA’s vendors for services purportedly provided. Santos admitted that she received $2,448,794 of income she failed to report to the IRS during the 2007 through 2010 tax years.

Former Bank Vice President Sentenced in Connection with Rothstein Case
On Dec. 18, 2015, in Miami, Florida, Frank Spinosa, of Fort Lauderdale, was sentenced to 30 months in prison and one year of supervised release. On Oct. 8, 2015, Spinosa pled guilty to conspiracy to commit wire fraud in connection with the operation of the former Fort Lauderdale law firm of Rothstein, Rosenfeldt and Adler, P.A. (RRA). According to court records, it was discovered in 2009 that RRA was being utilized by its chairman and chief executive officer, Scott W. Rothstein, to commit a massive Ponzi scheme stemming from the sale of fictitious confidential settlements. Spinosa, who, at the time, was a regional vice president with TD Bank, admitted that he conspired with Rothstein to induce certain persons into investing money by fraudulently creating documents that made it appear that certain investment funds were being held in restricted accounts at TD Bank when, in fact, they were not.

California Man Sentenced for Embezzling More Than $400,000 from Employer
On Dec. 15, 2015, in Sacramento, California, Jeffrey Lamson, of El Dorado Hills, was sentenced to 30 months in prison and ordered to pay over $400,000 in restitution. Lamson was sentenced for wire fraud in connection with a scheme to embezzle money from his former employer. According to court documents, from at least 2009 through 2011, Lamson embezzled over $400,000 from a company while he served as controller. Lamson used company funds to make unauthorized payments to himself and others and made payments to a fictitious vendor, controlled by Lamson, for services that were never performed.

Property Manager Sentenced for Stealing from Employer and Clients
On Dec. 11, 2015, in Washington, D.C., Lorraine Cyr, of Palm Bay, Florida, was sentenced to 41 months in prison, three years of supervised release and ordered to pay $380,537 in restitution to a property management company and other victims of her scheme, as well as $96,112 to the IRS. She will also pay a forfeiture money judgment of $342,917. Cyr pleaded guilty in July to wire fraud and income tax evasion. According to court documents, from 2001 until 2009, Cyr worked for a property management company in Washington, D.C. She was vice president of operations during her last four years of employment. Between July and November of 2009, Cyr embezzled $37,620. In 2009, Cyr started her own property management company, also in Washington, D.C., in which she performed similar duties for various clients. Between March 2010 and April 2011, she stole $342,917 in funds from eight clients. In addition, Cyr evaded paying income taxes on the money that she was stealing, as well as the legitimate income that she was earning, during the course of her scheme.

Former Maryland Businessman Sentenced for $7 Million Bond Scheme and Tax Fraud
On Nov. 10, 2015, in Baltimore, Maryland, Wilfred T. Azar III, formerly of Queenstown, was sentenced to 63 months in prison and three years of supervised release for securities fraud and filing a false tax return. In addition, Azar was ordered to pay restitution of $7,219,362 to victim investors and $469,936 to the IRS. According to court documents, in 1999, Azar became president and majority owner of Empire Corporation and exercised complete control over the operations of Empire. From January 2006 to April 2010, Azar caused Empire Corporation to sell bonds to 64 individual investors for more than $7 million. Azar diverted millions of dollars of proceeds from the bond sales to his own bank account and the bank accounts of other companies that he controlled. Azar also diverted more than $1.07 million in Empire funds as “loans” to other unrelated businesses he controlled, which were never repaid and another $3.31 million to make lulling payments. Finally, Azar failed to report approximately $1,959,250 of embezzled income on his 2009 tax return.

Former CEO of Marketing Agency Sentenced for $2 Million Fraud and Kickback Scheme
On Oct. 14, 2015, in Manhattan, New York, Michael J. Mitrow, Jr., of Whitehouse Station, New Jersey, was sentenced to 42 months in prison, three years of supervised release and ordered to pay restitution of $83,219 to the IRS and $1,468,259 to the victim company. In January 2015, Mitrow pleaded guilty to conspiracy to commit wire fraud and tax evasion. According to court documents, Mitrow was the CEO and President of a pharmaceutical marketing company. From approximately 2008 through 2009, Mitrow defrauded the company by submitting fraudulent invoices for consulting services and then used the proceeds to fund more than $600,000 in private jet travel. Mitrow willfully failed to report to the IRS (1) his income from the fraudulent consulting invoices, (2) $1.4 million in kickback payments he received from companies owned by co-defendant Robert Madison, (3) $200,000 in personal purchases Mitrow made with his corporate credit card and (4) $415,000 in payments by the company to a relative of Mitrow and his co-defendant and brother, Matthew Mitrow. In July 2015, Matthew Mitrow, of Westfield, New Jersey, was sentenced to three months in prison and ordered to pay restitution of $30,822 to the IRS for filing a false tax return for the 2008 tax year. Co-defendant Robert Madison, of Henderson, Nevada, was sentenced in May 2015 to 18 months in prison and will be ordered to pay restitution at an amount to be determined at a later date.

Georgia Couple Sentenced for Tax Fraud
On Oct. 7, 2015, in Birmingham, Alabama, Kenneth Horner, and his wife, Kimberly Horner, were each sentenced to 18 months in prison, three years of supervised release and ordered to pay restitution of $144,455 to the IRS. The Horners were found guilty of filing false corporate tax returns and false individual income tax returns in February 2015. According to court documents, Kenneth and Kimberly Horner owned Topcat Towing and Recovery Inc. (Topcat Towing), a towing business in Lithonia, Georgia. Between 2005 and 2008, Topcat Towing had an exclusive contract with DeKalb County, Georgia, for all county car tows needed from the south precinct of the county. Between 2005 and 2008, the Horners skimmed more than $1.5 million in cash receipts from their towing business and deposited those cash receipts into their personal bank account. The Horners did not disclose the income to their tax return preparer nor did they report the income on either their corporate or personal tax returns filed with the IRS.